London-based private equity firm and key Flybe Group shareholder Hosking Partners could thwart a planned takeover of the UK regional carrier by the Connect Airways consortium, Sky News has reported.

On January 11, Flybe Group said Connect Airways, whose shareholders include Virgin Atlantic, Stobart Group, and another private equity firm - Cyrus Capital, had submitted an offer to acquire all Flybe's shares for approximately GBP2.2 million pounds (USD2.83 million) and to extend a bridging loan to the airline for GBP20 million (USD25.75 million). The offer had valued each of the airline's 216,656,776 shares at GBP0.01 per share, far below that of its trading value.

However, on January 15, Flybe said that as it had been unable to meet the conditions for the loan, it had accepted a restructured offer wherein Connect Airways would simply acquire flybe. (BE, Exeter) (including Flybe Aviation Services Ltd) and the digital company Flybe.com Ltd for GBP2.8 million (USD3.61 million). Flybe's decision to move from a premium to a standard listing on the London Stock Exchange (LSE) on January 17 also negated the need for it to seek shareholder approval for the deal.

In the wake of these developments, Sky News said it had seen correspondence in which Hosking Partners, a 19% shareholder in Flybe, had raised doubts as to whether the GBP2.2 million offer reflected the intrinsic value of the airline. It also alleged that the handling of the proposed sale had also blocked a rival offer from emerging at a higher price. The firm said in a letter to Flybe's directors that it had instructed its lawyers to explore all options available including attempting to obtain an injunction prohibiting the Flybe/Connect Airways deal from being completed.

The letter was also copied to the UK Takeover Panel and the Financial Conduct Authority.

Sky News said that aside from Hosking Partners, other Flybe shareholders were also "furious" given the move to a standard listing had all but negated their say in the transaction which, if completed by late February, would effectively hollow out Flybe Group.

The shareholders' anger has also been stoked by the fact that early last year, the Flybe Board rejected a Stobart Group takeover bid which had valued the airline at roughly GBP0.40 per share.

Hosking's letter also raised concerns about the process through which Stobart and Virgin were permitted to form an alliance given they were, at one point, competing bidders for Flybe.

Commenting on the entire matter, a flybe spokesperson later Sky News that the airline's board had been faced with a very tough decision based on its current difficult liquidity position and the expectation that this pressure will continue.

"Obtaining the revised facility, as announced on 15 January, from the consortium provides the security that the business needs to continue to trade, which preserves the interests of its stakeholders, customers, employees, partners and pension members. Flybe will be responding directly to letters received from shareholders," the spokesperson added.